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Investors still greedy? Some warn of risk levels

Investors are still taking more risk than they should, Curtis Arledge, co-head of fixed income at BlackRock Inc., warned advisers yesterday at the Schwab Impact conference in San Diego.

Investors are still taking more risk than they should, Curtis Arledge, co-head of fixed income at BlackRock Inc., warned advisers yesterday at the Schwab Impact conference in San Diego.
Investors are aging and need to shift into bonds, Mr. Arledge said in a presentation at the conference.
“They know they want to own less [stocks], but they don’t want to leave money on the table” while the market is rallying, he said.
“We’re looking through all our portfolios to make sure we know what [risk exposure] we have,” said Paul Hynes, an adviser with Burns Advisory Group in San Diego, in an interview. The firm manages about $380 million in assets.
Mr. Hynes said investors can be “bipolar” about their attitudes toward risky investments. And lately, there’s been “renewed optimism,” he said.
Mr. Arledge expects a rotation out of equities and into fixed income over the next two years.
Indiscriminately buying bonds has worked this year, but “now we’re in a period where there will be true winners and losers,” he said.
Managing fixed-income portfolios has become more challenging, and with more money heading into the bond markets, investors and advisers will have to pay more attention to this portion of their portfolio, Mr. Arledge said.
A core bond portfolio that tracks a broad index like the Barclays Capital U.S. Aggregate Bond Index, for example, won’t work for many investors, he said, because it will increasingly become a measure dominated by government-backed debt.
Some 81% of the index will be composed of government-backed paper by next year, Mr. Arledge said, compared to just 22% in 2007.
“We’ve never seen anything like this,” he said.
Government backing means low yields, so investors looking for any kind of return will have to go elsewhere, he said.
Regarding the rallies across all markets this year — “don’t get too complacent too quickly,” Mr. Arledge said. The surge has come on low volume, which should be viewed as a warning sign to investors, he added.
It has the look of a “feel-good rally,” Mr. Arledge said, and further volatility is likely.